An industrial dwarf?

Nigeria is the region's economic giant, a leading light in OPEC and a growing international player, yet it remains an industrial dwarf. Beyond its abundant oil and gas resources, most other sectors of the economy are in a deep malaise.

The country is no longer self-sufficient in food production and the secondary sector from heavy industry to light engineering - is stagnant or in decay. The manufacturing sector is languishing in a deep depression and according to a recent report by the Central Bank of Nigeria (CBN), it is only operating at 34% of capacity.

Yet it could all have been so different. At independence, agriculture was the mainstay of the economy and small manufacturing enterprises were flourishing. It can forcibly be argued that the income from the oil industry has cushioned government accounts, and so there has been little incentive to develop other sectors of the economy. The short-termism of big man politics - particularly under a military regime - does not lend itself to long-term development.

Nigeria's dependence upon oil revenues is clearly demonstrated by the national trade accounts. By far the largest export is oil (97.7% of total exports), while the next three most important are all agricultural - cocoa (0.6%), rubber (0.3%) and cotton (0.3%).

Manufacturing barely even registers on the scale. However the main imports in 1997 were manufactured goods (29%), machinery and transport (24%) and chemicals (22.7%). The economy follows a similar pattern to many developing economies: the main exports are primary raw materials while imports are dominated by processed, manufactured goods. The oil revenues should have enabled the government to diversify the economy. Instead they have stunted it.

Despite such a gloomy picture, there are signs that the situation could improve. Firstly, President Obasanjo announced a wide-ranging reform of customs duties to parliament in January this year, with the hope that this will act as a spur to the domestic manufacturing sector.

Import duties slashed

Duties have been cut in several industries, including engineering, textiles, printing, automotive industries and petroleum products. Duties on imported materials used in education, agriculture, mining and energy have been removed altogether. In addition, duties are being increased on some imported manufactured goods, particularly luxury goods, in a move designed to stimulate local manufacture. The main components of current manufacturing are oil processing, textiles and brewing, and it is within these sectors that export industries could be developed.

The need to develop an industrial sector has also been recognised by the international community. The United Nations Industrial Development Agency (UNIDO) has increased its level of assistance to Nigeria from $8m to $12m and opened a regional development centre. These funds will be spent on 16 industrial projects, mostly small-scale projects in the food processing, sourcing of raw materials and environmental protection sectors. "Nigeria will solve its problems by itself," said the UNIDO director general Carlos Alredo Magarinos, "but we will participate in this task".

The Nigerian government has joined with UNIDO in promoting industrial development throughout West Africa. A UNIDO West and Central Africa Regional Industrial Development Centre has been set up in Nigeria to provide technical support to industrial development in the region. UNIDO will provide two-thirds of the centre's funding, while the Nigerian government will contribute the remainder.

Privatisation high on agenda

The failure of state-owned enterprises, combined with World Bank and International Monetary Fund (IMF) pressure for change, have pushed privatisation up the agenda. The sale of state-owned businesses has a relatively long history in the country, yet progress has been rather piecemeal.

There are over 1,000 staterun enterprises, but policy has fluctuated in line with each new economic policy. General Abacha announced in his final budget of 1998 that all sectors of the economy were to be opened up to private investment, through deregulation and privatisation. His successor, Abdusalam Abubakar, was also a fan of privatisation. Despite the uncertainty caused by the return to democracy, a key feature of the Memorandum of Understanding between the Abubakar government and the IMF was a commitment to the privatisation process.

The incoming civilian government was initially reticent about privatisation. The fact that Abubakar's programme formed the basis of the IMF's renewed engagement with Nigeria provided a compelling incentive for it to accept it whole, but it was by no means certain that the Obasanjo government would continue with the policies initiated by Abubakar. In the words of a party spokesman, rapid privatisation could be tantamount to "selling off the family silver" to provide the retiring military elite and its cronies with a "golden handshake".

Nevertheless, the government embarked on a Second Privatisation Programme and the National Council on Privatisation (NCP) was established shortly after the election. The NCP announced a three-stage privatisation programme, the first step of which - the sale of holding companies - is in the process of being completed.

Phase two will see the sale of a range of larger businesses, such as hotels, vehicle assembly plants and other industrial enterprises. It will also include the sale of construction firms such as West African Portland Cement plc and Benue Cement Co. plc. Phase three is concerned with the sale of key utilities and major conglomerates.

State-owned oil refineries are due to be privatised in 2002, ahead of the planned building of new refineries by foreign investors. This decision has been taken, according to the President, to create a level playing field by not burdening the existing refineries with the shackles of state ownership.

Whether privatised industrial concerns will prove to be more effective than state-run parastatals remains to be seen, but they can hardly be any worse.

President Obasanjo has targeted a GDP growth rate of 10% by the year 2003. While increases in oil production and the development of a gas sector are expected to provide most of the impetus for growth, the President has also pledged to give priority to export processing zones and manufacturing linked to agricultural production.

If such ambitious growth targets are to be met, then the diversification of the economy through the development of a real industrial sector is an absolute necessity.